Problem 6-23 Absorption and Variable Costing; Production Constant, Sales Fluctuate CLO6-1, LO6-2, LO6-3] Tami Tyler opened Tami's Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler's personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University. Tami's Creations, Inc Income Statement For the Quarter Ended March 31 834,900 Sales (23,000 units) Variable expenses: Variable cost of goods sold $271,400 Variable selling and administrative 184,000 455.400 Contribution margin 379,500 Fixed expenses 215,800 Fixed manufacturing overhead 220,000 Fixed selling and administrative 435.800 Net operating loss (56300) Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company would probably have reported at least some profit for the quarter. At this point, Ms. Tyler is manufacturing only one product, a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow. Units produced 26,000 Units sold 23.000 Variable costs per unit 7.30 Direct materials Direct labor 3.00 Variable manufacturing overhead 50 Variable selling and administrative 8.00